Nov. 10 (Bloomberg) -- China is accelerating the yuan’s
appreciation as part of the “grand bargain” to win U.S.
support for Beijing to gain a bigger say at the International
Monetary Fund, says Goldman Sachs Asset Management’s Jim O’Neill.

China’s yuan, known as the renminbi, reached the strongest
level against the dollar since 1993 ahead of a Group of 20
leaders meeting this week in Seoul. The gain came after the
IMF’s executive board approved a plan that would make China the
third-strongest member in the organization, a position described
by the fund’s chief Dominique Strauss-Kahn as allowing Beijing
to take more “responsibility” in the global economy.

“People forget, but the currency has risen by 3 percent
since the summer and has risen nearly 25 percent over five
years,” said O’Neill, chairman of Goldman Sachs Asset, in an
interview on Bloomberg Television. It’s not a “fluke” that
China is given a bigger share at the Washington-based IMF, and
“that’s part of the grand bargain,” he said.

O’Neill, who was returning from a nine-day trip to Asia,
including China, also said it’s “ridiculous” to claim that
countries around the world are engaging in a “currency war.”
Brazil’s Finance Minister Guido Mantega used the “war” term in
September to complain that countries from the U.S., China to
Japan are pushing to weaken their currencies to gain an export
edge.

“The whole currency war thing is ridiculous,” said
O’Neill. “A true currency war will surely be one where the U.S.
bought renminbi. I know this is a great term for people in the
media, but it doesn’t really make sense to me at all.”

Yuan High

The yuan rose as much as 0.2 percent to 6.6330 a dollar
today, the strongest level since China unified official and
market exchange rates at the end of 1993, according to the China
Foreign Exchange Trading System. The yuan will rise faster than
the 3 percent traders are betting on in the non-deliverable
forwards, according to O’Neill.

Acting on an Oct. 23 deal by finance chiefs of the G-20
nations, the IMF agreed last week to shift more than 6 percent
of voting rights to developing countries, while weakening the
clout of European members including Belgium and Germany. The
plan “may have an influence on the behavior of the Chinese
authorities,” Managing Director Strauss-Kahn told reporters in
Washington on Nov. 6.

No Banking Crisis

O’Neill, 53, created the BRICs acronym in 2001 to describe
the rising power of large emerging markets in Brazil, Russia,
India and China. He was named chairman of Goldman Sachs Asset
Management in September after working as the co-head of global
economics research and chief currency economist at Goldman Sachs
Group Inc. since 1995.

In the interview, O’Neill also rebuffed speculation that
China may have a banking crisis as the government boosts lending
to stimulate growth during the financial crisis. Harvard
University professor Kenneth Rogoff said in July China’s
property market had begun a “collapse” that would hit the
nation’s banking system. Fund managers including James Chanos
and Marc Faber also have warned of a crash if a property bubble
isn’t averted.

“People in New York seem to be worried about some kind of
Chinese bank crisis,” said O’Neill. “That’s just naïve. The
Chinese government owns the Chinese banks. Every time I go, I
keep searching for all these things that could go wrong
especially because people are telling me every week. But I
didn’t see much of it.”

China is moving to reduce its current account surplus in
the share of its economy, a move that the U.S. Treasury endorses,
said O’Neill. It is the U.S. lawmakers who are intensifying the
tension between the two countries, he added.

The House of Representatives on Sept. 29 passed a bill to
let U.S. companies impose punitive duties on Chinese products to
compensate for a weak yuan.

“The relations between the Treasury and China are very
good,” said O’Neill. “The problem is something called Congress.
The U.S. politicians need to understand that there’s plenty of
scope for another big guy on the block as well as themselves.”